Negative from Steel Stable Outlook Stable in the country

Mumbai, Ta. 27 February 2020, Thursday

India Ratings & Research has outlooked India's steel sector outlook for fiscal year 1 from the stable. The agency has come to the notice of the five per cent normal growth in demand for steel and the pressure of scarcity. At the end of the current financial year, the steel sector is projected to grow at four percent. The cost of raw material behind steel mills is seeing an increase due to high premium rates (new for captive and trade purposes) for new iron ore miners.

In addition, the decline in disruptive activity in the country has impacted the growth in demand for steel and there is no significant improvement. The agency estimates the country's economic growth rate for the current fiscal year at 5 percent and for the next year at 8 percent.

Heavy competition and high premium rates seen in bidders for recently auctioned mines will increase the cost of production on steel companies. In the country, the premium rate of 5 percent of the new auctioned iron ore mines is higher than 5 percent, which will increase the price of iron ore significantly.

The vulnerability of China's steel demand and the impact of the corona could adversely affect global steel and domestic prices. However, international prices of coking coal and iron ore softened steel mills will have some benefit.

With the decline in demand from the construction sector, if China's production growth does not slow down, there may be risks to global steel prices. China's economic downturn is also becoming negative for steel. If steel demand is not strong in the last 6 months of fiscal year 1, it is said that new additions to capacity and added pressure on asset prices could put pressure on it.